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AMETEK, Inc. (AME): Hedge Funds In Wait-and-See Mode

Investing in small cap stocks has historically been a way to outperform the market, as small cap companies typically grow faster on average than the blue chips. That outperformance comes with a price, however, as there are occasional periods of higher volatility. The last 12 months is one of those periods, as the Russell 2000 ETF (IWM) has underperformed the larger S&P 500 ETF (SPY) by more than 10 percentage points. Given that the funds we track tend to have a disproportionate amount of their portfolios in smaller cap stocks, they have seen some volatility in their portfolios too. Actually their moves are potentially one of the factors that contributed to this volatility. In this article, we use our extensive database of hedge fund holdings to find out what the smart money thinks of AMETEK, Inc. (NYSE:AME).

AMETEK, Inc. (NYSE:AME) investors should be aware of a decrease in hedge fund sentiment in recent months. AME was in 29 hedge funds’ portfolios at the end of September. There were 31 hedge funds in our database with AME holdings at the end of the previous quarter. Our calculations also showed that AME isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Phill Gross of Adage Capital Management

Phill Gross of Adage Capital Management

Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world’s most bearish hedge fund that’s more convinced than ever that a crash is coming, our long-short investment strategy doesn’t rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds‘ buy/sell signals. Let’s take a look at the key hedge fund action encompassing AMETEK, Inc. (NYSE:AME).

How are hedge funds trading AMETEK, Inc. (NYSE:AME)?

At Q3’s end, a total of 29 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -6% from one quarter earlier. By comparison, 33 hedge funds held shares or bullish call options in AME a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

AME_dec2019

More specifically, Citadel Investment Group was the largest shareholder of AMETEK, Inc. (NYSE:AME), with a stake worth $304.2 million reported as of the end of September. Trailing Citadel Investment Group was GAMCO Investors, which amassed a stake valued at $117.8 million. Adage Capital Management, Giverny Capital, and Polar Capital were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position SAYA Management allocated the biggest weight to AMETEK, Inc. (NYSE:AME), around 10.69% of its portfolio. Giverny Capital is also relatively very bullish on the stock, designating 7.3 percent of its 13F equity portfolio to AME.

Since AMETEK, Inc. (NYSE:AME) has faced bearish sentiment from hedge fund managers, we can see that there is a sect of hedge funds that elected to cut their full holdings by the end of the third quarter. It’s worth mentioning that Steve Cohen’s Point72 Asset Management dumped the largest investment of the “upper crust” of funds monitored by Insider Monkey, valued at an estimated $15.1 million in stock, and Clint Carlson’s Carlson Capital was right behind this move, as the fund sold off about $13.6 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest was cut by 2 funds by the end of the third quarter.

Let’s now review hedge fund activity in other stocks similar to AMETEK, Inc. (NYSE:AME). These stocks are Corteva, Inc. (NYSE:CTVA), Tencent Music Entertainment Group (NYSE:TME), Zoom Video Communications, Inc. (NASDAQ:ZM), and Wipro Limited (NYSE:WIT). All of these stocks’ market caps resemble AME’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CTVA 35 457542 -1
TME 15 378566 4
ZM 30 468958 -2
WIT 12 111102 -2
Average 23 354042 -0.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 23 hedge funds with bullish positions and the average amount invested in these stocks was $354 million. That figure was $963 million in AME’s case. Corteva, Inc. (NYSE:CTVA) is the most popular stock in this table. On the other hand Wipro Limited (NYSE:WIT) is the least popular one with only 12 bullish hedge fund positions. AMETEK, Inc. (NYSE:AME) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Hedge funds were also right about betting on AME, though not to the same extent, as the stock returned 7.8% during the first two months of the fourth quarter and outperformed the market as well.

Disclosure: None. This article was originally published at Insider Monkey.

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